Cost should be debited to the branch incurring that expense. It should not be debited to some other branch. Lets see an example.
Cost debited to branch
An employee from Head office at Mumbai visits the branch office at Kolkatta. He stays there in a hotel. He gets bill for stay charges and food and beverages. After his official tour he comes back to head office and claims reimbursement.
Since two states are involved system requires IGST to be accounted but because of place of supply rule the hotel had charged CGST+SGST. ITC is denied. ITC is populated in Mumbai 2B under ineligible column. The same is furnished in table 4(D)(2) of GSTR-3B.
As a recourse, the employee can give GST number of the Kolkatta branch, so that the ITC gets populated into Kolkata’s 2B and that branch can claim ITC. ITC on hotel stay portion only. Food and beverages are anyway not claimable.
But the Kolkata branch cannot keep that expense in its cost center because that expense pertains to an employee visited from head office. So, he transfers that cost to HO by passing a journal entry. Now, only ITC component is there in Kolkata branch.
From Income tax point of view it is ok because the computation of income tax payable is calculated at consolidated level. However, to ascertain profitability of each branch the cost is debited to the location incurring the expense.
Balancing both i.e. GST requirement and matching principle the Company should allow to stay the hotel expense in Kolkata books (in this example), so that the ITC claim becomes easy.
Conference expense and ITC
Similar to the example given above, the conference is also hit by the place of supply rule and ITC is denied. Conference is held for business meeting, celebrating achievement, setting new business targets etc. In this conference employees from various branches are invited. A total expense is then allocated to respective branch. The ITC is denied because of place of supply rule of immovable property.
As a recourse, the Company can request the hotel to issue one single invoice as ‘Event management service’ wherein the hotel can charge IGST. Entire GST becomes eligible. Then the cost allocated to other branches should be invoiced by the Company as Cross charge and levy IGST. The receiving branch will get the ITC. There is no ITC loss in this method.
ITC on Accomodation
Company gives accommodation facility to its employee. The company pays rent and incurs maintenance cost for the house to facilitate the employee stay conveniently. Whether ITC is eligible on the rental paid by the company and on the maintenance cost.
It is hit by personal consumption u/s 17(5) of CGST Act. ITC is not eligible.
An argument that the employee works for the company and hence the rental and maintenance cost is incurred in the course and furtherance of the business. ITC should be eligible.
ITC on guest house
Unlike the accommodation where there is an element of personal consumption, the guest house is purely for the employee coming in from other branches of the Company. There is no family staying in. It is only for the official visit and stay. Hence, ITC is eligible on guest house rent and maintenance cost.
ITC on food and beverages
ITC on food and beverages is not claimable as per section 17(5) of CGST Act. However, if the law requires the office/ factory to provide food and beverages to its employee then the ITC is eligible.
The proviso to section 17(5) is reproduced below –
Provided that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.]
As per the Factories Act, 1948 , a factory must provide and maintain an adequate canteen if it ordinarily employs more than 250 workers and is specified by a State Government notification.
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